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Saturday, October 29, 2011

Apex court's ruling on 'preponderance of probabilities' in Bhoormull case was re

Apex court's ruling on 'preponderance of probabilities' in Bhoormull case was rendered in context of sustaining demand – apart from making mistake in electricity consumption figures for computation of demand no evidence gathered from suppliers - Stay granted: CESTAT

MUMBAI, AUG 27, 2010: A duty demand of '74 lakhs and an equivalent penalty has been confirmed against the appellant on the ground of clandestine manufacture and clearance of M.S.Ingots. There is also a penalty of' 10 lakhs imposed on the Managing Director u/r 26 of the CER, 2002.

The aforesaid finding of clandestine clearance is based on consumption of electricity in excess of certain limit reported by Dr. N.K.Batra, Professor of IIT, Kanpur based on a technical study of the process of manufacture of M.S.Ingots from raw materials such as scrap, sponge iron etc. The Professor reported a range of energy units (555 - 1046) required for the production of one MT of M.S.Ingots depending upon various factors affecting the efficiency of the furnace, like use of capacitors, furnace capacity, nature of raw material etc.

Incidentally, the show-cause notice adopted the range of 555 - 1026 units as consumption of electricity for production of one MT of M.S. Ingots and attributed the same to the IIT Professor's "Technical opinion report on productivity of induction furnace" and thereby an inflated demand made its appearance. So, also, the extended period of limitation was invoked.

The appellant is before the CESTAT with applications seeking waiver of pre-deposit and stay of recovery of the adjudged amounts.

It is submitted that apart from the fact that the demand is an inflated one, it is solely based on `preponderance of probabilities' and there is no documentary evidence of production and removal of any unaccounted quantity of finished goods; no evidence of consumption of any specified quantity of raw material and moreover no evidence was gathered from any purported buyers.

The appellant also drew the attention of the Bench to the fact that the very same IIT Professor's technical opinion was not accepted by this Tribunal in the case of R.A.Castings Pvt. Ltd. vs. Commissioner of C.Ex, Meerut [2008-TIOL-2732-CESTAT-DEL] and since the demand of duty in the instant case is also based on the same report, it was liable to be set aside. An addendum to the show cause notice, which was issued to meet a contention raised by the assessee in their reply to the original show-cause notice viz. deriving cost of production on the turn-over element mentioned in the books of accounts was also adverted to. It was emphasized that the addendum did not materially change the complexion of the Revenue's case, which continued to be founded on "probabilities".

The Bench after considering the submissions observed -

"4. …, we are of the view that the appellant has made out prima facie case for waiver and stay. The impugned demand of duty is based on what was found to be excess consumption of electricity, which in turn, is based on a technical opinion given by the IIT Professor. It appears the adjudicating authority repeated a material mistake which was there in the show-cause notice. The show-cause notice relied on the said technical opinion which was to the effect that one MT of M.S. Ingots could be manufactured by consuming electric energy in the range of 555-1046 units. The show-cause notice, however, took the opinion in a materially different way (555-1026), which came to be repeated in the Commissioner's order. This apart, the ld. Commissioner chose to demand duty on the basis of what he considered as "preponderance of probabilities". … Apparently, the ld. Commissioner was following a ruling of the apex court on "preponderance of probabilities" rendered in the case of Collector of Customs, Madras vs. D.Bhoormull [2002-TIOL-253-SC-CUS]. The ld. JCDR also relied on this judgment of the apex court before us. However, it has not been shown to us that the apex court's ruling on "preponderance of probabilities" was rendered in the context of sustaining any demand of duty. We further note that this judgment of the Hon'ble Supreme Court was noted by the Tribunal in the case of R.A.Castings Pvt. Ltd. (supra) wherein the demand of duty raised on the basis of IIT Professor's report was set aside. The facts of the instant case, by and large, are similar to those of R.A.Castings Pvt. Ltd. and therefore, the view taken therein could be followed for the present purpose, in the absence of any stay of operation of the said decision of the Tribunal…."

In the result, the Bench granted waiver of pre-deposit and stayed recovery in respect of duty and penalty amounts and so also in respect of the penalty imposed on the Managing Director of the company.